Falling off the financial cliff

John Williams says that when it comes to inflation, you ain't seen nothing yet.

Severely slashing social programs such as Social Security and Medicare would be the only way it could be avoided. I don’t have any problem per se with Social Security or Medicare, but you can’t bring things into balance without addressing them. If you look at the U.S. annual deficit on a GAAP basis—generally accepted accounting principles—with accounting for the year-to-year change and the net present value of unfunded liabilities in Social Security, Medicare and such, you’re seeing a federal deficit in excess of $5 trillion per year.

Putting that in perspective, if you wanted to raise taxes, you could take 100% of people’s salaries and the government would still be in deficit. You could cut every penny of government spending, except for Social Security and Medicare, and you’d still be in deficit.

You can’t escape the eventual hyperinflation if those programs are not addressed. Originally, I was looking for hyperinflation by the end of this decade. I’ve advanced it to 2014, and it may well come before that. I think we’re already in the early stages of going through what has to happen for this to break.

I report, you decide. But those problems will not be addressed quickly, and probably not even addressed at all. The United States is presently financially suicidal.

Consider Spain, for example, which is now falling off the financial cliff.

Spain’s economy is double the size of Greece’s, Ireland’s and Portugal’s COMBINED.

Spain’s total debts, including mortgages and commercial loans, are large enough to bankrupt all of Europe.

Even if the United States manages to escape a direct contagion attack for a while longer, the impact of Spain’s demise ALONE will explode on global financial markets with a mega-tonnage that’s many times larger than anything we’ve seen so far from Greece.

Worst of all, Spain has simply run out of time. Its death spiral is under way; its plunge into default, virtually unavoidable.

Here are the horrifying facts …

Spain’s unemployment has skyrocketed to 22.6 percent; and among workers under 25, to an astronomical 48 percent!

At least one million people are at risk of losing their homes — the equivalent of nearly seven million people in the U.S.

Homelessness and begging are rampant; labor strikes and street protests, endemic.

And now, the final blow: Global bond investors are dumping Spanish bonds like a hot potato, driving Spain’s borrowing costs through the roof.

In fact, Spain is now having to pay three times as much on its three-month treasury bills than it paid only one month ago. Investment capital is fleeing Spain like proverbial rats and the sinking ship.

But it's not better here.

Almost everywhere in the world, especially in the United States and Europe, the pattern is clear:

First, the government spends everything it has.

Next, the government borrows all it can from its people.

Then, it borrows still more from foreign countries and banks.

Finally, the debts become so onerous that they bring on the contagion — the day of reckoning — we’re witnessing now.

Right now investor money is still coming into US markets because even though the game is crooked, it's the only game in town (or the world) that is still a safe haven. But it's only comparatively safe, and the comparison is like saying that a stage two lung cancer patient is healthy compared to a stage four patient.

I am not posting cheerful stuff here, I know. Jeepers, I sound like Jeremiah, but Jeremiah, for all his gloominess, turned out to be right.